Moody’s Revises Down G-20 Growth Forecasts as Austerity Bites

Real gross domestic product growth for the G-20 as a whole
will be about 2.7 percent in 2012, 3 percent in 2013 and 3.3
percent in 2014, Moody’s said in a report published today. For
the advanced economies in the group, growth next year will be
about 0.5 percentage points lower than forecast in August. While
growth in emerging economies will outpace that of developed
nations, prospects there have also moderated, the ratings
company said.

“In the G-20 advanced economies, we expect only a gradual
strengthening in growth over the coming two years,” Moody’s
said in the report, an update to its Global Macro Risk Outlook.
“Fiscal consolidation and volatility in financial markets will
continue to weigh on business and consumer confidence, while
heightened uncertainty hampers spending, hiring and investment
decisions.”

Major economies from the U.S. to China are facing headwinds
as Europe still struggles to overcome the sovereign debt crisis.
As the U.S. faces the so-called fiscal cliff, which without a
political deal would result in growth-choking tax increases and
spending cuts, countries including Spain and Italy are embarking
on austerity measures to rein in budget deficits.

‘Slow Progress’

“The slow progress in tackling structural issues has
contributed to weak economic recoveries from the 2008-2009
recession in advanced economies,” Moody’s said in the report.
“The risks to our forecasts remain skewed to the downside.”

Uncertainty surrounding the U.S. fiscal outlook continues
to pose a significant risk to global growth, according to the
report. Policy makers need to balance reducing the national debt
by fiscal tightening and preserving fragile economic growth, it
said.

While action from the European Central Bank and the Federal
Reserve helped mollify the financial crisis in its first years,
expanded balance sheets now are beginning to pose risks of their
own, Moody’s said.

“Inflation is a monetary phenomenon, and so by expanding
the provision of central bank reserves and increasing the stock
of narrow money there is a risk that inflation could pick up
sharply in the future,” it said. “The reliance on previously
untested policies and transmission mechanisms increases the
uncertainty around future economic prospects.”